It’s time to cancel Ottawa’s blank cheque

Last June, we wrote an article supporting Senator Wilfred Moore’s private member’s bill S-217. This bill would have amended the Financial Administration Act to once again force the federal government to secure parliamentary approval before doing any new borrowing in financial markets.

This Act died on the order paper when the government dissolved Parliament in September 2013. Undaunted, Senator Moore has re-introduced the bill; it’s being reviewed by the Senate Committee on National Finance. This will be at least the third attempt to restore parliamentary oversight of government borrowing.

Buried deep in Budget Implementation Act 2007 — the first of many massive budget omnibus bills tabled by the Harper government — was a provision which freed the federal government from the requirement for parliamentary approval before borrowing money. The government now has the power to borrow whatever amount it wants, whenever it wants — simply through a request from the Governor-in-Council.

There are any number of problems with this arrangement. For starters, nowhere in the 2007 budget did the government give any indication that it was proposing changes to the Financial Administration Act to eliminate the need for a Borrowing Authority Bill. In that budget, Finance Minister Jim Flaherty proposed “to amend the FAA to provide for greater transparency and accountability regarding the government’s borrowing activities and increase flexibility to meet future borrowing needs, especially with respect to the consolidation of Crown corporations.”

Few people understood what this implied. Those who thought they did (us included) mistakenly believed that these changes related solely to the consolidation of borrowing for three Crown corporations — Business Development Bank, Canada Mortgage and Housing Corporation and the Farm Credit Corporation. At the time of the 2007 budget, none of the opposition parties in the House of Commons and Senate realized what these proposed changes really entailed. It was only after the Budget Implementation Act 2007 received Royal Assent that senators started talking about the details and the penny dropped.

In Budget 2007, the Government argued that the changes were primarily made to achieve greater transparency and accountability. They did neither. Instead, they merely removed an obstacle in the government’s path — an important instrument through which Parliament could hold the government accountable.

“Whenever one hears the words transparency, flexibility, simplified, or streamlining from a government official,” Senator Lowell Murray said at the time, “one knows they are arrogating themselves more authority and discretion and that they are cutting someone out of the action. In most cases, the body they are cutting out of the action is Parliament and that is the case with this bill.”

In the Senate committee hearings, officials from the Department of Finance argued that the government needed greater flexibility to meet future borrowing requirements due to the consolidation of borrowing for the three Crown corporations.

Ottawa was able to manage the mid-1990s debt crisis and get parliamentary approval of its borrowing. If a government could do it under those circumstances without voting itself a blank cheque, why couldn’t its successor do so in 2008-09?

But governments had borrowed for those Crown corporations in the past and never felt the need for increased ‘flexibility’. The annual borrowing requirements of these three Crown corporations are relatively stable, unless there is a major government policy decision affecting them.

That did happen in 2009, when the government promised to commit up to $75 billion in loans to CMHC to fund the Insured Mortgage Purchase Program. No funds were advanced to CMHC until the Budget Implementation Bill for 2009 was passed, however. So much for the urgent need for flexibility.

The government has argued also that it needed more borrowing flexibility to respond to the turmoil in financial markets in 2008-2009 and the requirement for billions of new funding under the government’s 2009 Economic Action Plan. Yet nowhere in Budget 2007 was this mentioned as a reason for changing the FAA.

Moreover, the situation in 2008-2009 was a great deal less critical than it was in the mid-1990s, when the government was facing a “debt wall”. At that time, the federal debt-to-GDP reached a post-war high of 67 per cent. The Wall Street Journal wrote a highly critical editorial in January 1995: “Check out Canada, which has now become an honorary member of the Third World in the unmanageability of its debt problem.”

Notwithstanding, Ottawa was able to manage the debt crisis at that time and get parliamentary approval of its Borrowing Authority Bill. If a government could do it under those circumstances without voting itself a blank cheque, why couldn’t its successor do so in 2008-09?

In 2008-09, the federal debt-to-GDP was under 30 per cent and there was no fiscal crisis. There was no possibility of Canada finding itself unable to borrow in financial markets. In November 2008, Flaherty and Prime Minister Stephen Harper claimed the country was in good fiscal and economic shape. They quickly changed their minds and undertook an excessive stimulus program — far beyond what the OECD and IMF had been recommending.

The requirement for a Borrowing Authority Bill, approved by Parliament, would not have prevented the government from acting quickly. Parliament can be recalled on a 24-hour notice to deal with emergency situations. And under the FAA, no spending can occur without Parliamentary approval — such approval was not secured until months after the tabling of Budget 2009. Parliament easily could have reviewed and approved a Borrowing Authority Bill in that time frame.

Government officials have claimed also that increased transparency on borrowing and the planned uses of funds are now covered in the Debt Management Strategy and Debt Management Report. These reports have been published since the mid-1990s. They are not new. Although they include somewhat more information, that information was normally provided to Committee Members examining the Borrowing Authority Bill. The only real change is the amended FAA requirement that the Debt Management Strategy be published as part of the budget plan. Prior to 2007, it was standalone document. These reports are background material for a Borrowing Authority Bill, but they are definitely not a substitute for such a bill.

The government no longer has to go Parliament to justify a higher borrowing ceiling. It no longer has to explain itself to the Commons. It doesn’t have to do anything except take the money.

The federal government’s market debt reached an all-time high of $667 billion in 2012-13. For 2014-15, the government was provided with an aggregate borrowing request from the Governor-in-Council of $270 billion. Yet there is no longer any scrutiny by Parliament of these amounts. Furthermore, the government can request through the Governor-in-Council an increase in the ‘upper limit’ throughout the course of the fiscal year. They no longer have to go Parliament to justify a higher borrowing ceiling. They no longer have to explain themselves to the Commons. They don’t have to do anything except take the money.

Budget 2007 and the accompanying budget omnibus bill were a turning point in accountability and transparency. As we have seen since 2007, the government has made increasing use of budget omnibus bills. Those bills continue to be vague and obtuse in the extreme. The relationship between the initiatives contained in the budget omnibus bill and those proposed in the budget has become like a game of ‘Where’s Waldo’ — except with public money.

This came to a nadir with the inclusion in Budget Implementation Act 2013 of provisions to change the Supreme Court Act with respect to government nominees to the court — an attempt by the Harper Conservatives to get themselves out of a jam over their controversial SCC candidate, Justice Marc Nadon. Budget 2013 made no mention of these changes; it only became an issue six months after the budget was tabled.

(In fact, opposition members of the House and Senate committees really, really need to get into the habit, when examining future Budget Implementation Bills, of asking department officials to clearly point out where the initiatives are referenced in the budget. Initiatives that can’t be properly referenced — those stuck into the bill to meet a short-term political need, or as an afterthought — should be referred to the Speaker for a ruling as to whether or not they should be included in the Budget Implementation Bill.)

The elimination of the need for a Borrowing Authority Act leaves us with a weakened legislative branch in Parliament — swinging the balance of power toward the executive. Lori Turnbull, an associate professor at Dalhousie University, put it well when she appeared before the Senate Finance Committee: “In a responsible government system, that balance of power is supposed to rest with the legislative branch and at the federal level. It currently does not”.

It will be up to the Conservative government to decide whether to restore Parliament’s critical role in overseeing the nation’s finances on Canadians’ behalf. Given this government’s disdain for Parliament, we won’t be holding our breath.

Scott Clark is president of C.S. Clark Consulting. Together with Peter DeVries he writes the public policy blog 3DPolicy. Prior to that he held a number of senior positions in the Canadian government dealing with both domestic and international policy issues, including deputy minister of finance and senior adviser to the prime minister. He has an honours BA in economics and mathematics from Queen’s University and a PhD in economics from the University of California at Berkeley.

Peter DeVries is a consultant in fiscal policy and public management issues, primarily on an international basis. From 1984 to 2005, he held a number of senior positions in the Department of Finance, including director of the Fiscal Policy Division, responsible for overall preparation of the federal budget. Mr. DeVries holds an MA in economics from McMaster University.

The views, opinions and positions expressed by all iPolitics columnists and contributors are the author’s alone. They do not inherently or expressly reflect the views, opinions and/or positions of iPolitics.

1 comment on “It’s time to cancel Ottawa’s blank cheque”

Funny that a government planning to balance the books needs to hide its ability to borrow suddenly. Maybe the books will only be balanced for the microsecond necessary to get a photo-op. Then that glorious microsecond can be bronzed, and nobody need refer to debt again….